Taxes and the Efficiency Costs of Capital Distortions

28 Pages Posted: 28 Oct 2008

See all articles by Alfons J. Weichenrieder

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Tina Klautke

Goethe University Frankfurt

Date Written: October 2008

Abstract

Tax neutrality towards alternative financing instruments for corporate investment is a ubiquitous demand in the political debate. At the same time, the literature is surprisingly silent about the magnitude of possible efficiency costs of a departure from tax neutrality. Against this background, the present paper discusses the theory of capital structure and provides back-of-the-envelope calculations of the possible efficiency cost of a tax distortion of the debtequity decision.

Keywords: debt-equity choice, capital structure, excess burden of taxation

JEL Classification: H25, G32

Suggested Citation

Weichenrieder, Alfons J. and Klautke, Tina, Taxes and the Efficiency Costs of Capital Distortions (October 2008). CESifo Working Paper Series No. 2431, Available at SSRN: https://ssrn.com/abstract=1291095 or http://dx.doi.org/10.2139/ssrn.1291095

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Tina Klautke

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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